In international business, Ex Works (EXW) is one of the widely used International Commercial Terms (Incoterm) that places most of the burden on the buyer. The International Chamber of Commerce (ICC) developed Incoterms to provide a set of rules to determine responsibilities of buyers and sellers in cross-border business transactions.
EXW incoterms is one of the 11 Incoterms that was originally launched in 1936 to standardize shipping terms across companies around the world. The contract is beneficial to sellers in that it minimizes their liability and assigns transportation, risk, and charges to the buyers. Is EXW a good fit for your business, though? Let’s take a close examination of its highlights, responsibilities, advantages, and contrasts to other Incoterms.
What Does EXW Mean
EXW incoterms stands for Ex Works, which means that the minimum obligation of shipping lies with the seller. The seller is responsible for delivering the goods to a point agreed beforehand (ordinarily their warehouse, factory, or other agreed point). Once the goods are made ready to be taken up, all of the remaining risk and charges such as packing, loading, carriage, insurance, and customs clearance lie on the buyer’s side.
Key Features of EXW Incoterms
- Seller’s Responsibility: The role of a seller is minimal, ending after making goods available at their location.
- Buyer’s Responsibility: The buyer is liable for all charges and risks associated with transportation, shipping, loading, unloading, customs clearing, and duties.
- Legal Formalities: The buyer is responsible for handling all necessary documentation and legal procedures.
- Costs: The purchase price includes all charges beyond the seller’s property.
EXW Shipping Terms: Buyer’s and Seller’s Obligations
1. Factory Terms
- Seller: Provides merchandise in their warehouse or factory, making it accessible for pickup.
- Buyer: Arranges transportation from the business of the seller and is liable after that point.
2. Packaging Terms
- Seller: Responsible for exporting goods in a proper manner.
- Buyer: Typically not involved in packaging but sometimes needs more documentation such as invoices or labels.
3. Loading and unloading
- Seller: Not required to load the goods but can help at the risk and expense of the buyer.
- Buyer: Manages loading and unloading operations, i.e., at ports, warehouses, and destinations.
4. Customs Clearance
- Seller: Not responsible for customs import or export clearance but can assist on demand.
- Buyer: Handles customs procedures including duties, documentation, and fees for customs clearance.
5. Insurance
- Seller: Not required to provide insurance but can help if asked by the buyer.
- Buyer: Fully responsible for insuring the goods during transport.
Example of EXW in action
To better understand EXW incoterms in real business, use this example:
Company A (India) manufactures generators, and Company B (USA) is a distributor company. Company B places an order for 100 generators and is presented with two price options:
- $400 per generator, plus freight charges.
- $300 per generator EXW terms
Company B selects EXW in order to obtain a more affordable transportation service, to pay a transportation price of $70 per generator, a $30 per-unit price discount compared to that of transportation provided by the seller. In EXW, Company B is responsible for arranging the entire transportation process, customs clearing included, while that of Company A is completed when their factories load the generators for pickup.
EXW vs. Other Incoterms
EXW incoterms can assist companies in determining which arrangement is most suitable for their requirements.
1. EXW vs. FOB (Free on Board)
- FOB: The goods are to be delivered to a port and loaded onto a ship by the seller. The risk is transferred to the buyer when goods are on board.
- EXW: The buyer takes over the purchase when the goods become deliverable at the seller’s location.
- Which is preferable? FOB is generally used when the seller is in a better position to use shipping resources, whereas EXW is more useful to buyers wishing to control logistics completely.
2. EXW v. FCA (Free Carrier)
- FCA: The exporter exports the goods to a particular destination after customs clearance is done for exportation.
- EXW: The procedures of exportation rest with the buyer.
- Which is better? FCA is better when the exporter is in a position to undertake export clearance, making it easier for the buyer.
3. EXW versus DDP (Delivered Duty Paid)
- DDP: The entire risk and price is borne by the seller until it is brought to the buyer’s location.
- EXW: The buyer is responsible after pickup
- Which is better? DDP is ideal when buyers want minimal involvement in logistics, whereas EXW suits experienced buyers handling their own supply chain.
Pros and Cons of EXW
Pros
- Lower Costs to Sellers: Sellers do not have to pay transport and customs charges, making EXW a low-cost option.
- More Control for Buyers: Buyers get to choose affordable transportation options.
- Flexible Supplier Management: Buyers can combine shipments of different sellers.
Cons
- Higher Buyer Costs.
- All expenses beyond the seller’s facilities need to be handled by the buyers.
- Risk to Buyers: The buyers take complete liability for loss or damage.
- Inappropriate for Novice Buyers: In the absence of a strong logistics system, EXW can be a source of hidden expenses and time lags.
When to use EXW
EXW is beneficial to buyers who
- Have established logistics networks and overseas shipping exposure.
- Prefer direct control of shipping and customs clearance
- Are purchasing from sellers that lack the ability to handle export procedures.
However, EXW would be inappropriate for new importers or new players in overseas rules, as the buyer is liable for a multitude of things.
Endnote
EXW incoterms is a prevalent Incoterm that places all of the transportation, customs clearing, and insurance responsibilities on the buyer’s side. Because it is advantageous to sellers financially, it is a logistics burden to buyers. Business entities must be careful in their knowledge of shipping when utilizing EXW to ensure that they can manage the intricacies of overseas trade in a proficient manner.
By understanding EXW Incoterms, companies can make better-informed trading decisions that maximize their costs, reduce their risks, and facilitate better global operations.
